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One of the most common questions we get from clients in the investment loss law firm is can I sue my stockbroker?

Can I Sue My Stockbroker?

Can I Sue My Stockbroker?

While the answer is technically yes, more often than not investors will have to use arbitration instead of filing a lawsuit. When you opened your brokerage account, you probably signed a new account agreement or something similar. This agreement most likely contained a clause requiring you to decide all disputes between you and your broker through mandatory binding arbitration.

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Brokerage firms prefer arbitration because while it is similar to the court system, it is often far cheaper and more efficient. As an investor, this option still provides a number of options for you to hold your broker responsible for misconduct.

What Can I Sue My Stockbroker For?

If you’ve lost money and are wondering how to sue your stockbroker, you’ve probably thought about what you could sue them for. The Financial Industry Regulatory Authority (FINRA) regulates brokers and brokerage firms.

Brokers must register with FINRA and follow FINRA’s rules. These rules cover professional conduct and prohibit brokers from taking certain actions.

If your broker followed all of the rules and you still lost money, then you probably can’t sue them. However, if you think your broker made a bad investment or managed your money against your instructions, you may have a claim. Some of the most common reasons why a broker is sued include

  • Making unsuitable investments that are not appropriate for your investment profile;
  • Breaching their fiduciary duty;
  • Making material misrepresentations or omissions to their clients;
  • Excessive trading with no reasonable basis for doing so, also called churning;
  • Executing trades without a client’s permission; and 
  • Failing to diversify their clients’ investments.

Each investor has different expectations when it comes to their investments. As a result, a “one size fits all” approach is inappropriate for brokers to take.

Instead, they must carefully consider their clients’ investment profiles, including each client’s risk tolerance, and act accordingly. Making a bad investment or failing to consider a client’s investment goals may be grounds to sue your stockbroker.

How to Sue Your Stockbroker

Because brokerage firms require their customers to agree to arbitration, you can likely “sue” your broker only through the FINRA arbitration process. FINRA arbitration is an alternative method of resolving a problem between you and your broker.

Rather than going to court in front of a judge, you present your case to a neutral decision-maker called an arbitrator. After reviewing the evidence, the arbitrator may grant you monetary compensation or order other penalties against your broker.

FINRA arbitration is similar to going through the court system, but because it is slightly less formal, it is often far cheaper and much more efficient.

Nevertheless, the final decision in an arbitration proceeding is binding on the parties. Accordingly, you will not be permitted to make the same claims in regular court.

The FINRA Arbitration Process

There are six steps in the FINRA arbitration process. Much like in the regular court system, these steps allow the parties to collect evidence, present their case, and receive a decision from the arbitrator.

1. Filing a Claim and Getting an Answer

Just like you would in a regular court, the first step in FINRA arbitration is filing a statement of claim and paying the filing fee. This statement sets out what you believe your broker did wrong, facts supporting that claim, and the remedy you want the arbitrator to provide.

In many cases, you will want to ask the arbitrator for monetary damages to cover your investment losses. In some cases, however, you may want to force your broker to do something. This remedy is called “specific performance.”

After your claim is filed, FINRA will notify your broker of the pending complaint. The broker then has an opportunity to provide an answer. The answer will contain other relevant facts and set out the broker’s defenses. Your broker, known as the respondent in the arbitration, has 45 days to respond to your claim.

2. Selecting the Arbitrator

An arbitrator is a neutral third party who will act as a “judge” in your arbitration proceeding.

FINRA maintains a listing of qualified arbitrators, and it will randomly select the appropriate number of arbitrators for you to choose from. Both you and your broker can strike a certain number of names off the list. This method ensures that both parties are satisfied with the arbitrators selected.

The final number of arbitrators depends on the value of your claim. In investor cases with a claim up to $100,000, only one arbitrator decides the case. For investor claims over $100,000, the parties select a panel of three arbitrators.

3. Attending Pre-hearing Conferences

Before any evidence is presented, the parties will meet for the first time at a prehearing conference. At this conference, the parties set the schedule for the case. This is when deadlines for discovery, motions, briefs, and other preliminary matters are discussed.

4. Conducting Discovery

Discovery is the process of “discovering” facts and information relevant to your case. Just like in a civil trial, you can request specific information from the other party.

However, arbitration discovery is generally much more limited. For example, FINRA usually does not permit witness questioning through depositions.

If either party fails to provide documents or information in a discovery order, they may be subject to sanctions. In severe cases, the arbitrator can dismiss a claim, a defense, or the entire case.

5. Attending the Hearing

At the hearing, the parties will present testimony and evidence of their case. Under normal circumstances, the hearing will be similar to what you imagine in a court case. Witnesses may be called, and documents may be presented.

Parties will have the chance to conduct direct and cross-examination of any witnesses and offer exhibits for the arbitrator to consider. When the parties finish presenting evidence and hearing witness testimony, each side will make a closing statement.

6. Receiving a Decision and Award

Everything presented at the hearing will become a part of the official record of the case. After the arbitrator reviews the evidence presented, they will issue a decision. This decision will include details about any remedies awarded to the claimant.

In general, neither party may appeal an arbitration award except in limited cases. For example, arbitrator corruption or bias or awards obtained by fraud may allow a court to overturn an arbitration award.

Hire an Investment Fraud Attorney

If you lost money because your broker engaged in misconduct, you may be able to recover some or all of your losses. The Law Offices of Robert Wayne Pearce, P.A., has recovered over $140 million for investors across our 40 years of practice.

We can help you assess your case and file a claim, and we can represent you during FINRA arbitration proceedings. Contact us today or give us a call at 561-338-0037 to schedule a free consultation.

Author Photo

Robert Wayne Pearce

Robert Wayne Pearce of The Law Offices of Robert Wayne Pearce, P.A. has been a trial attorney for more than 40 years and has helped recover over $140 million dollars for his clients. During that time, he developed a well-respected and highly accomplished legal career representing investors and brokers in disputes with one another and the government and industry regulators. To speak with Attorney Pearce, call (800) 732-2889 or Contact Us online for a FREE INITIAL CONSULTATION with Attorney Pearce about your case.

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